MGM Resorts International’s longtime CEO and board Chairman Jim Murren will be leaving the company, but in what may be one of his last conference calls with industry analysts, he conceded last week that the company’s newest property, the MGM Springfield, in Massachusetts, is “performing below our expectations.”
Net profits were down $6 million in the fourth quarter of 2019, despite the fact that MGM’s revenues as a company are going up. The casino’s net fourth quarter revenues were $71 million, compared to $77 million for the third quarter.
Murren’s departure had been announced earlier the same day when the conference call was held. Several weeks previously, the removal and reassignment of MGM Springfield President and COO Michael Mathis and CFO Courtney Wenleder had been announced. Mathis’s replacement is Chris Kelley, whose job is to reverse the downward trend. MGM Springfield’s first full-year numbers were $301.1 million, considerably less than predicted.
MGM is going to proceed with a plan to sell the real estate on which the Springfield casino sits, then lease it back, which would, said Murren, “maximize the value.” The creation of a real estate investment trust (REIT) allows the company to cash in on tax benefits, while operating the casino.
Studying Gaming’s Effects
The lower profits from the Bay State’s casinos will be factored into the study of the effects of gaming on the economy and society that is being conducted by researchers of the University of Massachusetts.
The Massachusetts Gaming Commission recently announced it would pay researchers $3 million for the newest study. It will cover problem gaming, public attitudes towards gaming, crime, health and leisure, employment levels, real estate and housing and government spending and revenues.
The study may focus on social concerns, such as problem gambling, public attitudes toward gambling, health and leisure, environmental impact, and crime, she explained. It will also look at economic impact, such as spending and revenues from casinos, the business environment, employment levels and income, real estate and housing, as well as government spending and revenues.
The first casino under the microscope was Plainridge Park in Plainville, the first to open in the state in 2015. The 2016 study of Plainridge looked at where players live and what they spend at the casino. It was able to determine that the number of Bay State residents who left the state to visit other casinos declined after Plainridge Park opened.
The first data from the casino suggested that there had been no additional problem gambling behavior that could be attributed to it. Since then, the study noted, the casino is reporting higher revenues but from fewer players. This could mean that the risk of problem gambling could increase because of more intensive playing.
Some New England gaming experts urge researchers to both determine if problem gambling has risen, and whether a significant number of players come from the area’s universities and colleges. They also suggest spending some effort to determine what might be the impact if the state legalizes sports betting.
The study began in 2013, before any casinos opened, to get a baseline to compare subsequent data to. It surveyed 9,578 Massachusetts residents, and continues to follow many of them in subsequent surveys.
The study, possibly the most comprehensive gaming study ever conducted, is regarded by the Massachusetts Gaming Commission as a tool for creating statewide policies. According to MGC spokeswoman Elaine Driscoll, “We look forward to continuing this groundbreaking initiative and utilizing its findings to inform policy and develop evidence-based programming.”
While MGM’s receipts are lower than expected, Governor Charlie Baker is assuming that overall receipts from gaming are on the wane, and reflects that pessimism in this year’s budget. It forecasts $282.7 million for state coffers from all three casinos, including the Encore Boston Harbor and Plainridge Park.
This is down from the $525 million the three paid to the state last year.
The UMass study will also look at the reported increase in crime at the Encore since it opened. There were more than 160 arrests or citations in the casino between June and November. Top charges were disorderly conduct, assault and battery, larceny and cheating. However, according to Driscoll, this is not much different from the numbers of arrests and citations at any facility of this size and number of visitors.
Although revenues at MGM Springfield may be down, the casino is still making a lot of money—and a share of that money goes to the city of Springfield.
To inform city taxpayers where those funds go, the city held an informational meeting February 18. The driver behind this meeting was City Councilor Tracye Whitfield, who issued this statement: “Since I have been on the council, one of the top questions I get from constituents is ‘Where is the MGM money going?’ I think it is a fair question. I also think that anything that has to do with the city budget and finances needs to be transparent to Springfield residents.”
Whitfield is chairman of the council’s Finance Committee. She and the chairman of the Casino Oversight Committee, Michael Fenton, jointly conducted the meeting along with the city’s chief administrative and financial officer, Timothy Plante. About 40 city residents attended.
Each year, MGM pays the city about $24 million total, of which $16.4 goes into the general fund. Attendees learned how the money has been spent since the city began receiving the money in 2018 shortly before the casino opened. MGM and the city signed a 40-year financial agreement that spells out the casino’s obligations. The agreement included some prepayments to help the city during a tough economic time. Some of the payments are in lieu of tax payments. Some are community impact payments.
Plante told the group that while the funds help the city balance its budget it isn’t enough to provide property tax relief.
He told the audience, “While it hasn’t afforded us the ability to reduce tax bills across the city, it has been strategically invested in an effort to avoid reductions in important services and even budget cuts.”
Encore Boston Harbor
January revenues for the Encore Boston Harbor declined over the previous month at the same time that revenues at the MGM Springfield and Plainridge park bounced back from earlier declines.
The figures released last week by the Massachusetts Gaming Commission showed that the Encore’s revenues were $49 million compared to $54 million in December. The MGM reported almost $21 million for January, with the Plainville casing pulling up the rear with $11 million (compared to $10 million in December).
Encore has adopted some new tactics designed to appeal to medium and low rollers, as opposed to the high rollers who have always been attracted to Wynn properties all over the globe.
It has lowered minimum wagers at table games from $50 to $15, introduced free parking and brought a fire engine red food truck, the “Encore Cantina,” to the casino floor. As the name might suggest, the food truck serves tacos and other Mexican cuisine. Prices are low, such as $7 for a plate of nachos, and much more reasonable than at the casino’s other 15 restaurants.
Under the leadership of President Brian Gullbrants, the casino plans to add other options for people who don’t want to necessarily drop a C-note every time they have dinner on the property. He said the casino will soon open an Italian “neighborhood” restaurant with pizza by the slice and paninis.
He told the Boston Globe, “It’s in huge demand, and the affordability, the approachability of the food ― simple, straightforward — customers love it. It doesn’t mean that you don’t want to have a corporate business dinner at Rare, with your executives, or a special, nice night out with your wife at Sinatra.” Those are two higher end restaurants on the property. “But you don’t want to do that seven nights a week.”
It has also replaced some drink servers with automatic drink dispensers. Some bartenders will be cut and some drink servers have been transferred to other positions. About 40 bartenders are effect, of which 30 have already found new positions, some of them making more money per hour.
The move is intended to cut the time it takes for patrons on the casino floor to be served drinks. Some had complained that it took up to an hour to get a drink.
Encore’s executive director of food and beverage, Warren Richards, said when he investigated he found that a bottleneck was created by having up to tend servers bombarding single bartenders with multiple orders. The “EasyBar self service” towers will enable servers to get the drinks themselves, much like a customer in a fast food restaurant is able to dispense a soft drink.
Richards told members of the Massachusetts Gaming Commission: We replace the bottleneck with four different places that someone can approach, so now you’re taking eight servers and spreading them across four drink service areas instead of eight all going to one.” Richards added, “Our hope is this will, as much as four times, improve the service of drinks going out to the casino floor.”
One commissioner was concerned that speeding up the service could result in some patrons being over-served. Richards said the casino already has a policy of limiting patrons to three drinks per hour and that the faster service doesn’t mean that will change.
The change required an amendment to the Encore’s liquor license.
In a related development, the city of Everett, which hosts Encore, has applied for $200,000 from the Massachusetts Gaming Commission for a feasibility study of an aerial tramway that would bridge the distance from Everett Square and the casino, which is located next to the waterfront along the Mystic River overlooking the Boston skyline.
It would be meant to sync with a separate gondola line that the casino is studying to cross the river to Boston and the Orange Line station.
The grant application notes: “While Encore has advanced plans for a pedestrian bridge, they are also advancing plans for an aerial gondola to create year-round weather-protected means of connecting their Everett facility to the Assembly Row transit station.”
It continues, “This grant would be used to explore whether such an aerial tramway/gondola could be feasibly built and operated further north to Everett Square as a means of public transportation. Such a system would enhance the ability of Everett residents to travel to and from the gaming facility for work and leisure and, combined with Encore’s intended operation of a gondola system from its facility to Assembly, would also provide a direct connection to the MBTA orange line.”
